JP Morgan Plans Huge Private Equity Fund

The group will put $8 billion of its own cash into the
new fund. It is believed to be the largest single
contribution ever made to a single such fund by one entity.
The remaining funds would be coming from outside
institutional investors, such as pension funds and
insurance companies.

Private-equity funds have become more popular over the
last five years or so since they invest in leveraged
buyouts, start-up companies and other kinds of private
deals. However, the shakeout in Internet stocks may have
dampened demand.

Acknowledging this tough new environment, JP Morgan is
reportedly planning a large marketing effort, including an
up-front 8% “priority return” which would kick in
before the bank partners get to see any return.

Rushing In

Other incentives include the bank’s impressive
annualized returns of about 40% from previous private
equity funds, as well as its plan to invest more that $2
billion of its own money in any new deals.

A change in regulatory capital requirements is also
giving the new fund a push to get started. The
Federal Reserve already is proposing tougher capital
standards for banks investing in venture capital.

Reaction to the new fund was lukewarm, however, due to
the market conditions, potential conflicts of interest
between the fund and its parent bank, and whether there are
enough attractive targets out there to warrant the
investment.

An analysis of the banks private fund portfolio also
showed that buy-outs that used to produce returns of 31%
have declined and now produce substantially less. Venture
capital deals were more lucrative, but those opportunities
may be evaporating, according to some consultants.